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Value, in the information economy, is shifting from the producers of goods and services to the customers that buy them, and, say John Hagel III and Marc Singer, a new kind of entity—the "infomediary" —stands at the crux of the transformation. In this interview, the authors, explain what an infomediary is and how it fits into the new world of electronic commerce.
Q: What is an infomediary? Are there any current on-line competitors who are playing the role of infomediary yet?
A: As consumers begin to challenge marketers for control of their own customer information, they'll find themselves in need of a trusted third party to act as the custodian, agent, and broker of that information, marketing it to businesses on the consumer's behalf while at the same time protecting consumer privacy. This third party will act as a kind of personal agent, information intermediary, or infomediary—a company whose revenues come from helping consumers both protect and enrich themselves by capturing their own customer information and then selling it to the many companies that are now getting that information for free.
There's no one company that currently fits the definition of an infomediary that we put forward in the book. But a number of companies are positioning themselves to play the infomediary role in the future. These might include Amazon.com and CompareNet, among others.
Q: In your previous book, Net Gain, you wrote that the way for companies to win—and win big—on the Internet was to create a virtual community. In Net Worth you now predict that the great rewards will go to those that become infomediaries. Are you going back on the scenarios you described in Net Gain?
A: Actually, the scenarios discussed in both books are quite consistent with each other. We suggested in Net Gain that virtual communities might evolve over time into infomediaries, and we continue to believe they are attractive candidates to play this role. Net Worth simply tries to develop in more detail what we mean by infomediaries, the appeal that infomediaries will have, the dynamics of that particular business model, and the implications for a broad range of businesses.
Q: So are infomediaries the only viable business concept on the Internet?
A: As readers will discover, we certainly believe that infomediaries will become large economic entities with significant implications for other businesses operating in both digital and physical markets. Nonetheless, we believe there are in fact a broad range of business models that can succeed on-line. One of the challenges for business managers and entrepreneurs is to determine which business model is appropriate for their particular company, given their unique resources and aspirations.
Q: What kinds of companies are well positioned to be infomediaries?
A: The truth is that few of today's companies have what it takes to become an infomediary. Most lack either the customer relationships they'll need or the risk-taking culture that will be necessary for success. That's why we think infomediaries will emerge from a strategic combination of businesses that already exist—for example, an alliance between an Internet-based and a more traditional business. The Internet business would bring the ability to move quickly. The more traditional business would bring deep pockets and, more importantly, customer relationships and extensive customer profiles.
Q: How would an alliance like this get up and running? As you point out in chapter five, "an infomediary with no clients will have a hard time convincing the first client to entrust it with information."
A: When we're talking about sensitive customer information— how much money consumers make, what their health history is—trust becomes an essential part of the equation. Infomediaries will have to prove their trustworthiness when it comes to handling this information. Few companies today have built this kind of trust with customers. It isn't something that can be manufactured or produced—it has to be earned. No matter how sincere the infomediary is regarding privacy, no matter how many processes it puts in place to protect privacy, and no matter what it says about being loyal to clients ahead of vendors, the proof of the infomediary's trustworthiness will be in its track record.
In the book we recommend a series of "value exchanges" as a way for this trust to be built, client by client. Value exchanges are interactions between consumers and infomediaries in which consumers try out the infomediary's agent services—most likely by sharing information in the context of a planned purchase—and then see if the infomediary makes it worth their while to have done so. In value exchanges consumers get savings on what they buy and they also get their information protected—since their information is "exposed" to the infomediary and to the infomediary only.
Q: So what's in it for vendors in all this? It's easy to see why consumers might sign up for a service that promised them cost savings on purchases and increased privacy. But why would vendors want to participate in a service that will make them pay for their access to consumers—and for the information they previously got for free?
A: Many vendors will inevitably see the rise of infomediaries as a threat, at least initially. They'll say to themselves, "Uh-oh, this infomediary is coming between me and my customers." And it's true that vendors will have higher up-front costs to reach customers. But smart vendors will soon realize infomediaries can give them unprecedented access to customers. And not just any customers, but to desirable customers who are looking to buy something they need. This will have a significant effect on vendors' cost to acquire customers, which is today a huge percentage of the marketing spend. Infomediaries will also help vendors reduce customer churn, increase cross-selling, and gain more cost-effective consumer feedback.
Q: Why is the sequencing of moves so important for companies that are trying to build an infomediary business? Can you take us through the ideal sequence of steps?
A: Thinking through the sequence of actions that will best help them get their business underway is crucial for aspiring infomediaries. The first notion to come to grips with is that businesses characterized—as the infomediary is—by increasing returns to scale typically experience slow initial growth followed by gathering momentum. Infomediaries will need time to build trust with customers and demonstrate value to them. Once the powerful interplay between trust and value gains momentum, however, the infomediary will be able to build a critical mass of customers and offer them a full range of revenue- and profit-generating services.
Q: You identify financial services as an industry ripe for infomediation. Why do you believe that the banks won't be the ones to take advantage but rather a company like Intuit or Microsoft?
A: Financial services certainly is a promising market for infomediaries to take hold. Already companies like Microsoft, Intuit, and E*Trade are using the Internet to build customer relationship businesses, drawing control of customers' purchases away from traditional banks and brokerages. This may soon put traditional banks in a tight spot. They might try to turn into infomediaries, but that's unlikely. Most banks have proven reluctant to resell other institutions' products (except when those institutions don't offer competing products). And even if banks did offer other companies' products, customers might question their objectivity as information suppliers. Even more fundamentally, most banks are still struggling to integrate their computer systems so that they can merge all their information about a customer into an integrated view of that customer—a prerequisite for an effective customer-relationship business.
Q: What will happen to the businesses that decide not to pursue the opportunity to become infomediaries?
A: Not every company will find it advantageous to try to become an infomediary. But infomediaries will force nearly every company to ask that most daunting of questions: What business am I really in? In Net Worth we argue that companies will soon be unbundling themselves into three distinct businesses—customer relationship management, innovation and product development, and infrastructure management. Different economics and cultures drive each business. Chances are infomediaries will dominate the customer relationship business. But other types of business models will be advantaged in the other two businesses.
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